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Carrying over trading losses

Q: I have a small business set up to trade in furniture which has incurred losses, all encapsulated in my director's loan. If I switch company activity to one of the many permissible on my articles of association, can I carry those losses over to the new trading 'activity'?

A: Tax law allows limited use of trading losses of a company. You can either: (a) Set-off against current profits from other sources (b) Carry back against earlier profits from all sources (c) Carry forward against future trading profits. I assume you have no other income to offset against and your company did not make profits in the previous 12 months - the length of time allowed for a carry-back of company losses (this can be extended back to three years if the trade incurring the losses has ceased). So the only remaining option is to set against future profits. However tax law requires for any loss to be set off against future trading profits from the same trade. The key issue for the tax authorities is not what is permissible in the company’s articles of association but essentially whether it is the same trade which you describe as “trade in furniture”. The tax situation on losses can become quite complex so I would suggest you talk to an accountant who can ask detailed questions concerning the losses, become familiar with all the circumstances of the company’s situation and the nature of the proposed new trading activity. I am assuming that the trade in furniture business is ceasing and different tax treatment may apply if this is not the case. An accountant would be able to explore all the possibilities in this case.